Hope on a Rope

The chart shows that a major trend has ended in no uncertain fashion for the
broad US stock market as the market just dangles there at the end of the rope
that has thus far been known as 2008. Sure, we are expecting a counter trend
rally that will serve to catch as many people off side as possible in the market's
usual cruel way. But the fine bull market (in nominal USD terms) that took
off in early 2003 has broken trend and this will not be easily restored. Still,
with the amazing level of fear generated in the relatively short time since
the first impulse down kicked off in August of 2007, we cannot discount a rally
of significant proportions. A successful retest of the January, 2008 low or
new lows with a spike in fear indicators along with bullish divergence by our
usual indicators would set the stage for a nice trade. Bear markets can be
a great time to be a trader - as opposed to investor. As a side note, I will
again call your attention to our performance in the SINLetter
stock contest. With the right picks, a hold strategy can work in any market.
In this case technical analysis was used for all picks - bottom feeding a gold
stock (GSS) and palladium miner (PAL) and top calling (short) an over-hyped
internet consumer stock (AMZN) but fundamental views also came into play with
the gold stock and the internet stock. I got lucky with the hysterical upward
breakout in palladium that has driven PAL to a 132% gain. ;-) But again, that's
what TA is for; it improves the odds on your 'luck'.

For my part, I am primarily an investor in a bullish sector - continuing to
add quality gold miners on the buying opportunities. I also hold, as usual,
short term US Treasury vehicles for relatively safe liquidity. A couple
nicely beaten down uranium stocks have been added recently and I have been
successfully trading market ETF's and stocks such as FTEK and SIMG, mentioned
previously in this letter and/or
on the Chart of the Week.
But again, look at the chart above. The market has changed and if you are not
prepared to watch it closely, you should be mitigating risk because any rally
that comes is likely to face the hang man sooner or later. Hope will only float
so long. As for gold and silver, they are over bought, no question. But not
so for the majority of their miners. I will not go further into this sector
in this letter because nothing has changed. I will continue accumulating during
corrections. The fundamentals remain intact for reasons already covered repeatedly
and I expect our targets of 560 for HUI and 230 for XAU to be hit at some point
in the not too distant future. This would be in the face of near endless hysterics
that I hear personally - from some pretty smart people - that deflation is
here.

Think it's just the US, with its bloated, stinking credit markets melting
down that is in trouble? Not so. The British, French and Japanese markets have
also lost trend. The German DAX is attempting to hang in there (no pun intended)
but is destined to join its compatriots. The Chinese market is a different
animal, falling hard from its bubble highs in the initial leg down but holding
trend. In fact, the Hang Seng looks like it could be a buy at the trend line
from 2003. As with the US markets, there is room in many global markets for
a rally to test the breakdowns.

Commentary

Back in the USA it is clear that the majority are still steeped in convention
and are being spoon fed - like babies in a high chair - the standard fare served
up by the major media, both in finance and politics. Our guy, Ron Paul is all
but buried alive and it looks like we will get a good dose of Feelgooditis
with our likely election of Barack Obama. I have been a Ron Paul supporter
because he is an economist and of the Austrian school at that. But I am hopeful
that Barack's 'change', if he is indeed elected will embody something of substance
and value. I believe he could be a fine choice for president from an inspirational
standpoint, but we will need to get the economics nailed down here (see post
script below). Thus far however, he has not said anything to make me think
he is any more astute on sound monetary and economic policy than his competitors,
save Paul. As the more astute financial commentators have noted, we are likely
to get more of the same 'easy' policies and short term fixes that got us into
this ever-expanding macro mess in the first place. Wash, rinse, repeat as it
seems I end up writing in nearly every commentary. My personal belief, which
played a big role in the formation of the website in 2004, is that economics
is at the root of all social and political machination. If we screw economics
up how can we expect to get anything right? No matter who wins in 2008, he
or she looks dead set on enabling more of the same feel-good poison that got
us where we are today.

A final note; the major media are doing a fine job of telling us how bad things
are - although I'd ask where the hell they were for the many years that it
took for unhealthy yet readily obvious (to those willing to look) components
of this ill-fated Ponzinomic construct to be built. But is it really that bad?
Is it all darkness and Armageddon financially speaking? To the guilty funny
munny that gamed this thing to the hilt it certainly seems to be and to the
horror of the average American who bothers to open his or her eyes (late though
it is), this funny munny included supposedly respectable mutual funds, pension
funds, investment banks and other fine institutions. There are yet layers of
non-productive financial engineers left to be destroyed going forward and I
have no doubt they will be, either systematically or in a final burst of liquidation
in the wake of a macro 'accident'. But while the media is switching back to
scapegoat mode - focusing on cartoon-like negatives as is their charter - there
remain many highly productive and resourceful ventures on the economic landscape.
I expect capital -so well enabled by the Fed - to beat a hasty bee line toward
this productive capability. US manufacturing is not nearly dead. Nor of course
is technology. Going forward it will be important to discriminate in the way
one invests and in the way one lives one's life. I would hope biiwii.com can
focus on some of the positives now that the negatives we have harped upon so
often are front and center and scaring the daylights out of the public. The
world ain't ending. It's just that if you were a naughty player in naughty
games it sure feels that way.

Post Script: In keeping with the theme that things are not all negative
and all is not lost, here is a link to a heroic man; the US
General Accounting Office's David M. Walker. Much as Ron Paul has been
a lonely voice in congress holding Greenspan's and Bernanke's feet to the fire
over topics his peers barely seem to comprehend, there has been David Walker
heading the GAO and issuing sane advice and commentary all the while. In fact,
Mr. Walker was yet another inspiration for biiwii.com. He has announced early
departure (see the PDF file announcement at the top of the page) from the GAO
in part because "As Comptroller General of the United States and head of
the GAO there are real limitations on what I can do and say" and "My
new position will provide me with the ability and resources to more aggressively
address a range of current and emerging challenges facing our country..." Even
as the cartoon-like Republican vs. Democrat (as opposed to real conservative
vs. real liberal) public debate rages on, there are serious and respectable
people doing their part to reverse this mess. The country seems prepared for
change and people like Mr. Walker can help ensure that the change will have
some real economic direction by lending their voices to the debate.

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not recommend that any trading or investment positions be taken based on views
expressed on this site. If you speculate or invest it is suggested that you
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